Understanding Bankruptcy in Temecula

Bankruptcy occurs when an individual or family can not meet obligations to creditors. Bankruptcy Temecula occurs in several variations, but for personal bankruptcy, debtors may opt for either Chapter 7 or Chapter 13 bankruptcy, depending on the financial situation of the debtors. Prior to filing, however, debtors must complete credit counseling to ensure comprehension of the consequences for filing bankruptcy, to ensure the necessity of filing bankruptcy, and to consider whether a payment plan can be designed for repayment of the debt without filing bankruptcy.

After debtors have completed credit counseling, they may determine whether Chapter 7 bankruptcy is available to them. First, they must compare their monthly income to the average monthly income of a family of similar size within their state. If their income is less than or equal to the average income for the state, the debtors may file Chapter 7. If not, the debtors must complete a means test. The means test consists of deducting allowed living expenses and completing an evaluation of whether any remaining income allows for payment of debts. If debtors have available funds to repay debts, they must file Chapter 13. Otherwise, if the allowed income does not allow for payment on debts, Chapter 7 is available to the debtor.

The differences between Chapter 7 and Chapter 13 bankruptcy lie in repayment of debts. Chapter 7 bankruptcy involves liquidation of debts. The debtors will lose all of their non-exempt assets, their debts will be discharged, and they may keep any future income after filing for bankruptcy. Chapter 13, however, includes a repayment plan. This plan is for debtors who have adequate income to repay some of their debt, as demonstrated in a means test. For this reason, Chapter 13 is often called wage earner bankruptcy. The repayment plan designed for Chapter 13 filers will typically span between three and five years, and the debtor will repay between thirty and fifty percent of the debt. Following filing of bankruptcy, both Chapter 7 and Chapter 13 debtors will experience further credit counseling. This counseling will teach financial planning and ways to ensure responsibility with credit and finances. Courts will not issue a discharge of the bankruptcy until the required credit counseling is complete. Bankruptcy Temecula is a viable, valid option for those dealing with debt, but various rules and requirements govern the process for debtors.